Discretion and Taxes

I confess to being a little perplexed by all of this IRS stuff. I dislike discrimination against conservatives and abuses of the federal tax power well more than the next guy; all the same, it’s taken me a while to understand why the allegations against the IRS are so upsetting to such a broad range of folks. Is it really news that powerful federal authorities might use that power for political reasons, or for narrowly partisan advantage?

I take it that there is a specific norm against using the IRS for political or partisan purposes, in part as a reaction to abuses a few decades ago, but again, what’s the source or purpose of that norm? (And why is the norm so powerful that the President rushed to insist that it would be wrong for the IRS to act politically?)

Here’s my theory: The IRS has successfully convinced both legislators and judges that it should be basically immune to the rule of law. Many of the tax laws, like the standard for 501(c)(4) organizations, are incredibly “murky”, making it hard for most taxpayers even to know whether they are in compliance. And the IRS’s own views about these vague standards get broad deference.

What’s more, under the economic substance doctrines, even full compliance with the tax laws (which the IRS often calls “technical”) is not a defense if the IRS deems the transactions to be inconsistent with the spirit of the law. Courts usually defer to the IRS’s views about these transactions too. Tax practice is like practicing in a court of equity where the IRS is the chancellor.

But responsibility is needed to preserve this power. Perhaps the IRS’s basic immunity from judicial supervision only lasts so long as they can convince everybody that this is a narrowly technical area of law where the government agents are unusually neutral and public-minded.

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Mammas don’t let your babies grow up to be tax lawyers

The most-emailed story on the New York Times webpage right now is this column from The Ethicist, discussing the ethics of being a tax lawyer:

I am a tax lawyer. Is advising wealthy companies of ways to reduce their tax bills through sophisticated legal structures ethically permissible? The structures take advantage of legal loopholes in the tax legislation.

The ethics of specific professions create unique realms of responsibility. In the same way that a defense attorney is ethically obligated to give his client the best possible defense — even if he’s convinced of the individual’s guilt — your principal responsibilities lie with the company hiring you. You need to do your job to the best of your abilities, within the existing rules. You should, however, voice your moral apprehension about the use of such loopholes to the company you represent.

I have to say, I find this answer odd. I think The Ethicist is actually on to something when he generalizes from the case of providing legal assistance to wealthy companies to the case of providing legal assistance to the indigent facing prison time. But then he adds that you “should” (ethically, I gather?) exhort your clients not to take advantage of the legal options you just advised them about.

Would anybody say that to a criminal defense attorney? Would anybody say that you “need to do your job to the best of your abilities” to defend your client zealously before trial, at trial, and at sentencing, but that you “should, however, voice your moral apprehension” about your client’s conduct and tell them that the honorable thing to do is confess and go to prison? Surely not. At least, I hope not.

In the criminal defense context, I think we all manage to understand that passing moral judgment on one’s clients (and telling them so!) is simply not the lawyer’s job, let alone the lawyer’s ethical obligation. Yet in other contexts, we seem inconsistent about this. Think, for example, of the many arguments that Gabriella Blum takes on in this superb essay about legal ethics and the war on terror, where she argues that critics “have missed a fundamental point about the attorney-client relationship. It is the client–in this case, the government–who is ultimately responsible for making policy decisions, not the attorney.”

Just so. We ought to distinguish more between the task of providing advice about the law and the task of providing advice about the right thing to do.